Sunday, April 27, 2008

Kimball Hill Lays Down in Rolling Meadows

Quietly like an old man dies in his sleep venerable home builder Kimball Hill has finally filed for Chapte 11, bankruptcy. Just another victim of the burst of the housing bubble and yet a victim like no other.

Developer Kimball Hill Inc. has survived housing recessions during its nearly seven decades of home building since World War II, but today the developer of Rolling Meadows and several Northwest and West suburban communities finds itself in a battle for its life.

The company was not incorporated until 1969, but actually begun in 1953 when a lawyer named Kimball Hill bought up land ear marked to be a golf course. On the would be greens and fairways he built what they don't anymore, community, while conducting business in stark contrast to the CountryWide shark sellers of today, Hill built homes that

'..., were affordable and if the family couldn't pay the 10 percent down, $10 or $25 would do'.

Returning WWII vets and generations there after came to thrive in the booming suburb built by Kimball Hill - Rolling Meadows. It would be fair to say Hill poured his self into the town he built and that it is reflected in ways not measured on the balance sheet or metrics seen by analysts and rating agencies.

Hill's influence went beyond subdivision planning. He extended streets and then paved and named them -- mostly after birds.

He was the driving force behind the incorporation of Rolling Meadows, and the only reason the town wasn't named for him was because he didn't want it.

Hills son David took over the helm in 1969 and has since guided the ship steadily into the new century. But there the winds of the housing bubble caught the ships sails and control was ceded to human nature. The greed which led competitors to the steroids of subprime ingested profits, temporarily showing no visible sign of adverse consequence forced an impossible choice on Kimball Hill, to be bludgeoned into bankruptcy by the competition or be consumed by the same easy credit crack addiction of the subprime lending spree. And so it was that as the bubble swelled Kimball Hill entered markets it's dared not go into before the housing bubble.

The housing bubble has burst and the shock wave of the aftermath is unforgiving, mistakes made there like words spoken out of anger can never be undone only eternally regretted.

Kimball Hill, while a Chicago-centric builder, appears to have grown too aggressively with developments and joint ventures around the country in an attempt to opportunistically "ride the bubble". That business decision has now burned them badly.

In 2005 the company reported record margins and seemed well prepared to weather another impending housing downturn. As recently as January 2006 the company was seemingly in control of its fate. But Kimball Hills eternity of regret began in fiscal first quarter of 2006.

"Our wake-up call came in January 2006," he says now. "We were lulled to sleep during our first quarter of fiscal 2006 (October through December 2005) because we had the best margin closings in the history of the company. When we looked at declining sales, it was easy to attribute them to seasonal factors. "But in January, we saw the handwriting on the wall.

And the writing spelled doom as into year end 2007 the reeling builder, bled out $221 million. But there was one more blow dealt.


...,its net worth fell below levels for one of the covenants in its senior credit facility. Being in violation of that covenant limits the company's access to an estimated $100 million within that $500 million credit facility, which is why Standard & Poor's and Moody's last week downgraded their respective credit ratings of Kimball Hill, and S&P placed the builder on Credit Watch. "

So with the question of Kimball Hills ability to save itself resolved, the issue became simply when do they (creditors) remove the life support?

One of the turnaround scenarios for Kimball Hill and other home developers could be to renegotiate deals with local towns. More developers this year could show up at village board meetings for renegotiations, rather than new projects, according to real estate analyst Steven Hovany."A lot of developers will be forced to come hat in hand and ask to renegotiate impact fees, roads, water towers, open land," said Hovany,...'

It was in fiscal first quarter 2008 Kimball Hills eternity of regret came crashing to into chapter 11, where the hopes for renegotiations ran headlong into the reality of the housing crunch as the builder finally filed.

Kimball Hill, Inc. is private, it does not trade on an exchange, the insiders are family who did not simply abandon the company on a short term stock rally like rats from a ship and the product is a home instead of a flipping piece of property. After bankruptcy the company insiders took the full weight of the crisis on their shoulders by paying all vendors bills and finishing the houses already started and paid for at a loss.

The builder is far more a victim than a perpetrator of the housing crisis and it's easy hope for a fairy tale turn around for Kimball Hill, Inc. But the housing crisis positioned as it is, at the end of the final days of Ponzi finance and the beginning of peak oil is no place for fairy tales, it's the prelude to a depression, so there is no fairy tale rescue Kimball Hill.


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